AJ (Consultant) 24 September 2012

Business partnership with a friend

Dear All

My brother (Abhishek) wants to invest into a business that he and his friend (Vivek) want to start wherin both will be investing 50% each. Naturally the profit sharing is also 50:50 each. However, the company under which this business will work is in the name of Vivek (my brother's friend) and his father so that they do not have to register a new company. The amount to be invested by Abhishek and Vivek is to the tune of around 5 lacs EACH.

Now my query is what are the risks involved in such a model? What should be the legal procedure/documents be used in this case since my brother is investing into a business which is going to function under a company that is held by somebody else (Vivek and his father in this case)? In case of a fallout in future between the two parties (Abhishek and Vivek), how can my brother substantiate and claim for the investment that he makes now?

Any advice in this case is highly appreciated.

Thanks and Regards

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5 Replies

Adv Rohit Dalmia 9324538481 (Lawyer) 25 September 2012

if it is in the name of vivek then you need to check whether that firm is proprietorship concern or a partnership???

you better create a new partnership firm so that the understanding between your brother and vivek are covered in it. since the first company/firm is run by vivek and his father, i doubt your brother will get any power in that firm as he would be working as a manger only and all the decision making power shall rest in vivek and his father's hand only.

in that firm, your brother would not even have the authority to sign the cheque and do the bank transaction.

Therefore, in the interest of your borhter it is advisable to form a new firm and do the business. by creating a partneship deed.

Regards,

Advocate Rohit Dalmia

9324538481

Mumbai

AJ (Consultant) 25 September 2012

Dear Mr Dalmia

Thank you for your response, really appreciate the same.

Just one last query I have. Vivek says that whatever money Abhishek invests in that company, it will reflect in his company's account statement/balance sheet. Do such transactions matter anything or do they have any significance when it comes to resolving disputes/making claims?

Anticipating your response.

Warms Regards

Adv Rohit Dalmia 9324538481 (Lawyer) 26 September 2012

Transactions might be reflecting. but incase of dispute how your brother shall provie about partnership???? viviek could show those amount as advance or friendly loan. Then how your brother will tackle it?????

without partnership deed and a seperate firm, your brother will have no right in the business affair as well as in bank transactions.

Regards,

Advocate Rohit Dalmia

9324538481

vishak (manager) 26 September 2012

In other words, if u are investing without being partner legally, you would loose share in net worth of company (Capital + profits), what legally u can claim at the best would be your money (as a third party loan)